The northeastern coast of South America should remain one of the most hotly watched frontier exploration regions in 2020 following a slew of discoveries and the first flow of oil in Guyana in 2019, analysts said.
Assuming drilling success in Guyana can be replicated in nearby Suriname, analysts and international oil companies are banking that production from the two small countries could ramp sharply higher in the next decade.
At the end of December 2019, Exxon Mobil Corp. and its partners Hess Corp. and China National Offshore Oil Corp. announced that oil production from the Liza offshore field in the massive Stabroek Block in Guyana started ahead of schedule. Oil from Liza should be flowing into the global market in January.
The Stabroek Block has been estimated to hold about 6 billion barrels of oil equivalent recoverable resources, but that figure is now believed to be conservative as the majors continue to find oil. Exxon and Hess on Dec. 23, 2019, announced a 15th discovery in Stabroek at the Mako-1 well southeast of the Liza field.
"Overall, we continue to see a credible path for Guyana to ramp to over 800,000 [barrels per day] of production by 2025, underpinned by significant discovered resource, including the incremental Mako-1 well," Goldman Sachs said in a Dec. 24, 2019, research note to clients.
Not all oil companies have enjoyed the same success offshore Guyana. On Nov. 13, 2019, Tullow Oil PLC saw its share price plunge 25% in a day after it announced oil finds off Guyana are not as valuable as first expected.
"The below-expectations results of oil from the Joe-1 and Jethro-1 wells, as well as personnel changes in the Board of Directors, are likely to lead the company to alter its 2020 drilling campaign in Guyana," according to Fitch Solutions.
Tullow Oil, which owns a majority interest in the Orinduik and Kanoku blocks offshore Guyana, is awaiting results from the third well, Carapa, which will help direct its 2020 drilling campaign, Fitch said in a Dec. 31, 2019, report.
Despite Tullow's setbacks offshore Guyana, some majors remain attracted to the area and are investing big off the coast of Suriname. On Dec. 22, 2019, Apache Corp. said it would partner with French major TOTAL SA to develop Block 58 off Suriname. In exchange for a 50% stake, Total will pony up $100 million upfront, another $75 million on first oil production and will reimburse half of the block's costs incurred thus far, which analysts said could be as much as $65 million.
In early December 2019, Apache's stock price crumbled to an 18-year low after the Houston-based producer said it needed to conduct additional testing to determine if its first exploratory wells in the area will prove fruitful with oil.
With four years of exploration and drilling success offshore Guyana, the industry's interest in Suriname "crystallized," Raymond James analysts said in a Dec. 18, 2019, research note. The analysts highlighted the Kosmos Energy Ltd.-operated Walker prospect could prove to be one of the "most needle-moving" discoveries in Suriname in the year ahead.
Kosmos, Exxon and Hess each own a 33.3% stake in Walker, located on Suriname's side of the maritime border with Guyana, east of the Liza, Turbot and Snoek discoveries. Pre-drill estimates for Walker are pegged at 250 million barrels of oil equivalent.
"If successful, Walker would demonstrate the prospectivity of Block 42 and also the adjoining Block 45 (a 50/50 partnership with [Chevron Corp.]) in much the same way that Liza 1 opened up the Stabroek Block in 2015," Raymond James wrote.
However, Kosmos is expected to proceed with caution as it explores Suriname, Raymond James said, noting that in 2018, the company halted drilling after encountering dry holes in Pontoenoe and Anapai.
"Over the past year and a half, Kosmos has used the learnings from those disappointments in preparing to resume operations. This history accentuates the fact that frontier exploration is never straightforward, and even 'look-alike' opportunities still need to be considered on an individualized basis," Raymond James said.
Analysts at BMI said the new investments off Guyana and Suriname "constitute an upside risk to our production forecasts for both countries," but that "political uncertainty over the regulatory framework for upstream operations and a 2020 general election pose moderate downside risks for our production forecast for Guyana."
"Although we recognise that the new regulations governing upstream production are likely to change, we do not expect the companies currently operating in Guyana's offshore blocks to abandon upstream programmes," the analysts wrote.